TaxTMI 
TaxTMI 
2019 (5) TMI 1048
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.... (2) To pass an order that the action of the contesting Respondents have not been approved by the other directors and the shareholders. (3) To pass an order surcharging the contesting Respondents for their illegal actions and return back the misappropriated money of the Company and the Trust to the accounts of the Company and the Trust. (4) To pass an order directing the contesting Respondents to render proper accounts to the Company and the Trust. (5) To pass an order for through inspection and investigation of the affairs of the Company and the Trust by appointing Inspectors through the Ministry of Corporate Affairs. (6) To pass an order to appoint an Independent Auditor to investigate the dealings of the purchase of land and the amount received and spent by the Company and how it is booked in the accounts of the Company. (7) To pass an order that the allotment made to the contesting Respondents without premium is null and void and consequently direct the Company to reduce proportionately the numbers of shares allotted to them and rectify the Register of Members. (8) To pass an order declaring that the Board Meetings and Ge....
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....d transfer of shares to the R-2, the entire paid-up capital of the Company was held by the Respondents 2 and 4. (5) In order to develop the school, the Respondent 2 mooted an idea of allotting shares to the investors in the Company and thus approached the Petitioners herein and other individuals with a request to invest in the shares of the Company. Since the Petitioner thought that the running a school is viable business and it would bring more returns, they have decided to invest in the shares of the R-1 Company. Accordingly, they have invested their hard-earned money in the share capital of the Company in the year 2006 onwards. Till that point of time, the Respondents 2 and 4 alone, were the shareholders of the Company and on 30.11.2006, 25000 Equity Shares of each allotted to the 4th Respondent, the 1st Petitioner, 3rd Respondent, 5th and 6th Respondent and the 2nd Petitioner at a premium of Rs. 50 per share. It is pointed out that till the EGM for the year 2006, the 2nd Respondent was holding 7500 shares and it was increased to 57,500 shares by an allotment of 50,000 Equity Shares of Rs. 10/- each without any premium and as on the date of holding the AGM for the year ....
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....invested by the other investors and the Company has not divulged the said information to the Petitioner Directors till date though they are entitled to get the said information. All the above information now submitted have been collected by way of inspecting the documents filed by the Company with the Registrar of Companies. (8) It is also stated that on 17.04.2011, the R-3 herein had sent an email to the investors wherein it was mentioned two options: a. Get additional investment from the current investors or from new investors. b. To sell the school to an individual, who is interested to purchase the school and the said person would be paying the current investors with 8% annual interest and in turn the shares are to be transferred to him. In the said email, he had also informed that many of the Board Members are considering the second option. It is not known who are the Directors considered the second option and according to the Petitioners, they must be none other than the contesting Respondents. And this email, which has been sent by the R-3 had invoked serious repercussion in the affairs of the Company and number of Directors had ques....
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....Agreements and identification of the gaps. d. Review of Debt financing Agreements to assess if they are fair and market based. e. Verification of Liabilities and Contingent Liabilities, if any. f. Review and identify if there are areas with the conflicting interest between the Company and the business owned by BOD members. (11) It is stated that the Auditors have made following observations arising out of financial review: a. Few of the accounts forming part of books of account are not matching with the audited financial statement, so as to say balances in the ledgers are not reconcilable either with the audited financial or with the documents/statements provided to us. b. Some of the entries in the books are not supported by bills/vouchers/documents. c. The person appointed to coordinate and provide us with the information was not aware of the transactions recorded in the books prior to 2012-13 and we were not provided with satisfactory explanation/information for the said years. d. There was no responsible person to provide complete and proper information with respect to the transactions entered into by the i....
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....port would show the fact that the Company has not maintained any proper accounts for the receipts either investment received from the investors or the fees received from the students. It would show that the affairs of the Company was not conducted in proper manner as envisaged under the Companies Act or any other Act which is in force time being. (12) It is stated that in one of the Board Meeting held on 21.04.2007, the matter of Trust was taken up by the Board and in the said meeting, the 1st and 2nd Petitioner and Respondents 2, 3 and 6 were present. However, the Board has taken a decision about the Trust and it was decided by the Board that there would by 5 trust members on a yearly rotation, 3 from Board and one from US investor and one from Indian investor. The 2nd Petitioner, Respondents 5 and 6 volunteered to be the trust members, however, the 2nd Respondent recommended Dr. Eshwar as trust member subject to his approval and the member from the Indian investor was to be decided. Though the said meeting was held in the year 2007, no proposal of appointing trust members was received from the contesting respondents, in the back of the Petitioners, the contesting Respond....
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....and Respondents No. 2, 3, 5 and 6 were nominated as members of the Committee. The financial committee was inter alia responsible for supervising an independent review of the Company's affairs by Vinay & Keshava, Chartered Accountants (V&K'). (2) It is stated that during the refinancing of the Company, Respondent No.2 was the only Director-Shareholder, who has mortgaged his personal property, to prevent the Company from being declared as non-performing asset. It is asserted that Respondent No.2, unlike the Petitioners, has always worked to promote and protect the best interests of the Company. (3) Whilst the Company was still facing the above financial difficulties, Petitioner No.1 instructed his lawyers to issue a legal notice dated 22.04.2013 to the Company questioning the allotment of shares made in favour of R-2 and certain other shareholders inter alia in 2008, during the period when Petitioner No.2 himself had been Chairman of the Board of Directors. This legal notice demanded that a review of the allotment of shares be conducted by a Consultant appointed by the financial committee in addition to the financial review which was already being undertaken....
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....nt investors at different premiums. (8) As regard the 2011 allotment of shares, the Petitioners have been aware of the said allotment, according their own statements, at least since February 2012. Their attempt to dispute the allotment of shares now, after such a long delay, should not be permitted. (9) It is a settled principle of law that for a Petition alleging acts of oppression the acts of oppression must be continuous; the Petitioner cannot rely on isolated incidents. The Petitioners have failed to establish any continuous acts of oppression, and this is because there have been none. R-2 has, at all times, cooperated with the Petitioners in resolving their concerns regarding the management of the affairs of the Company. The Petitioners are re-agitating their earlier grievances (which have been discussed at Board Meetings already) by disguising them as acts of oppression. R-2 suspects that the actions of Petitioners No.1 and 2 are a reaction to their removal from the Board of the Company in March, 2016. The present Petition was filed shortly thereafter in May 2016, even though the allegations made in the Petition relate to earlier years. (10) The Pet....
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....s stated that such orders, which relate to functioning of a trust, cannot be sought in a Petition relation to oppression and mismanagement. Disputes in relation to a Trust should be dealt with under the provisions of the Indian Trusts Act, 1882. Only a Civil Court is conferred with the jurisdiction to adjudicate disputes relating to the Indian Trusts Act, 1882. Moreover, the said Trust is an independent entity and the Company does not supervise the management of the Trust. (13) The allegations that the Respondents have not rendered proper accounts and that there is a likelihood of Respondent No.2 manufacturing and fabricating documents are without any basis. It is stated that the financials of the Company have been audited by a statutory auditor appointed by the Board of Directors (of which Petitioner Nos. 1 and 2 were a part), and the financials were later approved by the Board and filed with the Registrar of Companies. The audited financials were further reviewed by a consultant (V&K) who has also not made any findings of mismanagement; the consultant has merely sought clarifications. In any event the Petitioners have failed to provide any evidence to show that affairs o....
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....) Contrary to the Petitioners' allegations, it is submitted that the share allotments (including the allotments proposed to be made in 2011) have not been made mala fide with the objective to inter alia reduce the shareholding of the Petitioners. In any event, the various allotments made by the Board over time have not resulted in the Petitioner's shareholders being substantially reduced, as alleged. (4) The Petition alleges that the Petitioner Directors were deliberately not provided notices of meetings. It is stated that the Petitioner Directors and other Directors were throughout kept informed about the Board Meetings and the business of the Company. They were duly provided notices of Board Meetings and Minutes of meetings were also circulated to all Directors. Some of the allegations made by the Petitioners in this regard are patently false. For example, the Petitioners allege that they were not aware of the EGM held on 11.12.2015 and that they did not receive notices for the said meeting is not correct as notices were sent to the Petitioners on 19.11.2015. In addition, the date and Agenda for this EGM were also discussed at the previous Board Meeting held on 1....
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....9.10.2018, 27.11.2018 06.12.2018, 17.12.2018, 18.12.2018, and 20.12.2018. The case is adjourned on various dates at the request of parties on one ground or the other. 7. Shri Madhu N. Rao, learned Counsel for the Petitioner after arguing the case, has also filed written arguments dated 30.01.2018, by inter alia, contending as follows: (1) Till 30.11.2016, no shares were allotted inspite of reminders from the Petitioners. On 16.08.2006, in an allegedly and invalidly held Board Meeting (Conference Call), the then Chairman of the Company, R-6, took few invalid decisions for finalizing issue of sweat equity shares. The R-6 also justified his position vide email dated 12.10.2006. The Petitioner No.2 reverted back to those proposals vide email dated 20.10.2006 stating that investments were made on the understanding of equal footing and the decisions were contrary to the decision dated 26.04.2005. (2) Further, during the course of the running of the Company, the R-2 to 6 perpetuated many oppressive and mismanagements acts which were/are prejudicial to the interests of the Company and the Petitioners and other members. They have continued such acts even when the presen....
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....s in time as per Law. In another instance, in an email dated 22.09.2010, R-2 writes an email to the then Directors that the financials were not yet ready and hence the Board Meeting to approve the accounts need to be postponed by a day or two. In another email dated 22.09.2010 i.e. on the same day, the R-2 sends only a draft Balance Sheet and Profit and Loss Account for discussion in the Board and goes on to say that the final accounts can be done later. In a mail dated 26.09.2010, the R-2 states that there would be an investors meeting on 03.10.2010 at Chicago and sends the AGM notice and Accounts. If an investors meeting was held in Chicago on 03.10.2010 (Company Secretary Compliance Report states that AGM for the year 2010 was held on 30.09.2010), then how was the AGM held on 30.09.2010, that too when the accounts were only ready on 26.09.2010? It is hereby prayed before the Hon'ble Bench that the Respondents are directed to produce the Notices sent to the members for the AGM which was held on 30.09.2010. (5) There were no properly and validly held Board Meetings. The Notices were not served for many of the Board Meetings. It was held in P. Narayanaswamy case that t....
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....ng with the Financial Statements; d. Book entries not supported by bills/vouchers; e. No satisfactory explanation for transactions before 2012-2013; f. No explanations for proper CAPEX expenditures; g. The internal control mechanism was not satisfactory; h. Discrepancies in many expenditures incurred; i. Unauthorized cash transactions and no voucher or supporting for the same; j. Disparity in allotment of shares; k. Questionable Related Party Transactions. (7) It is further contended that the issue in question is a continuous cause of action and it is also within limitation as last legal notice was issued on 01.07.2014 and thus it is filed within a period of limitation. Moreover, latest act of oppression came to light as late as 30.09.2017 when the Respondent No. 2 stated that the accounts of MVP Institutions Private Limited and the Respondent No. 1 were merged for seeking loan from Banks and Financial Institutions and this decisions will have vide ramifications on the Company, its members and operations of the School and alleged fraud in it. (8) They have also relied upon the following judgme....
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....e is pending, as the Petitioners came to know their latest act of oppression on 30.09.2017 when the Respondent No. 2 stated that the accounts of MVP Institutions Private Limited and the Respondent No.1 were merged for seeking loan from Banks and Financial Institutions. Therefore, the plea of laches and limitation as contended by the Respondents would not applicable to the instant case and we hold it is continuous cause of action. 10. The learned Counsel for the Petitioners has filed a Memo of Documents dated 20.12.2018 by enclosing copies of the complaints given to various authorities i.e. Office of the Principal DIT (Inv.), Bangalore dated 07.11.2017; Registrar of Companies, Karnataka dated 08.01.2018 & 08.10.2008; Office of Registrar of Companies, Karnataka dated 12.01.2018, by making various allegations against the Respondents and thus sought to take appropriate action against them. However, it is stated that those complaints under consideration of those authorities. By fed up with lethargic attitude of authorities, the Petitioners have also addressed the Hon'ble Prime Minister office by inter alia requesting to direct the ROC and DIT at Bangalore to conduct investigation....